1.One reason firms in monopolistic competition can charge different prices is th

Question

1.One reason firms in monopolistic competition can charge different prices is that their products are

1 identical 2 similar   3 differentiated 4 guaranteed

2.In the long run, economic profits tend to be eliminated under conditions of monopolistic competition. True or False

3.The Clayton Act brought labor unions under the jurisdiction of the antitrust laws. True or False

4.The greater the product differentiation,

1 the more elastic a firm’s demand curve    2 the less elastic a firm’s demand curve     3the less the price difference between competing firms      4 the closer to perfect competition

5.The demand curve for the output of an individual firm in monopolistic competition is

1more elastic than the market demand curve     2 less elastic than the market demand curve 3 equivalent to the market demand curve    4 perfectly elastic

6.Assume an industry is comprised of three firms—A, B, and C. Firm A controls 50 percent of the market, Firm B controls 30 percent, and Firm C controls 20 percent. What is the value of the Herfindahl Index?

1.   100     2. 200      3.  2600     4. 3800

7. In an oligopoly, the pricing policy of each firm is independent of that of other firms. True or False

8. In monopolistic competition, there is no need for advertising. True or False

9. The individual supply of a monopolist

1. coincides with the market demand curve     2.is below the market supply curve    3.is below the firm’s average revenue curve     4.coincides with the market supply curve

10. The Clayton Act prohibits price discrimination. True or False

Explanation / Answer

(1) Option (3)

Monopolistic competition differs from perfect competition in that they offer slightly differentiated products.

(2) TRUE

A monopolistical competitive firm needs to spend additional money for keeping their products diferentiated, which increase their costs & erode profits.

(3) TRUE

Unlike the Sherman Anti-trust act, Clayton act takes into its ambit labor unions as well.

(4) Option (2)

Higher differentiation makes the firm's products in higher demand & makes its demand curve more inelastic.

(5) Option (2)

Firm's demand curve is less elastic than market demand curve.

(6) Option (4)

HHI = (50)2 + (30)2 + (20)2 = 2500 + 900 + 400 = 3800

(7) FALSE

Oligopolistic market has very few firms, who price their products after considering one another's pricing and output decision.

(8) FALSE

Advertising is the primary tool using which a monopolistically competitive firm differentiates its product.

(9) Option (4)

Monopolist is the only firm in the market, so firm supply curve and market supply curves are the same.

(10) TRUE

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